Whittman v UCI Holdings Limited
[2016] NZHC 1228
•9 June 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-1213 [2016] NZHC 1228
BETWEEN BRIAN WHITTMAN AS FOREIGN REPRESENTATIVE OF UCI HOLDINGS LIMITED
Applicant
AND
UCI HOLDINGS LIMITED Respondent
Hearing: On the papers Counsel
D J Friar and N F D Moffat for Applicant
M Kersey and S P Pope for Credit SuisseJudgment:
9 June 2016
JUDGMENT OF PALMER J
This judgment is delivered by me on 9 June 2016 at 11 am pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors:
Bell Gully, Auckland
Russell McVeagh, Auckland
WHITTMAN v UCI HOLDINGS LTD [2016] NZHC 1228 [9 June 2016]
Summary
[1] UCI Holdings Ltd is incorporated in New Zealand. It is also the parent company of a group which has filed for Chapter 11 bankruptcy in the United States. Mr Brian Whittman has been appointed by the United States Bankruptcy Court as foreign representative of UCI Holdings Ltd. He applies, in New Zealand, for orders under the Insolvency (Cross-Border) Act 2006. The orders would reflect the automatic stay that exists in the United States as a result of the Chapter 11 petition. The United States Court requests the New Zealand courts’ assistance with this. The application for interim orders is without notice except as to one creditor, Credit Suisse. The interim orders will last until Mr Whittman’s application for recognition in New Zealand of the Chapter 11 proceedings is decided.
[2] In considering the application I derive assistance from the factors relevant to interim freezing orders under part 32 of the High Court Rules. I consider there is a good arguable case Mr Whittman will succeed in the substantive application, there is a risk the property will be dissipated, and the overall balance of convenience and interests of justice favour granting the interim orders. I grant the orders.
The Applications
UCI and Chapter 11
[3] The UCI Group of companies design, manufacture and distribute vehicle replacement parts, primarily in the United States. It employs approximately 1,800 employees in the United States. It does not supply any products or have any operations or employees in New Zealand. But the parent company, UCI Holdings Ltd, is incorporated in New Zealand. This may be because it is indirectly wholly- owned by Mr Graeme Hart and four of its six directors reside in New Zealand.
[4] A number of pressures have impacted on UCI Group’s business and have adversely affected its financial results. As a result the Group missed its $17.25 million semi-annual interest payment to bondholders due on 16 February 2016. The Group’s current balance sheet seems to have become unsustainable. Without restructuring it seems the Group will be unable to comply with its debt obligations.
[5] On 2 June 2016 the UCI Group, including UCI Holdings Ltd, filed petitions under Chapter 11 of Title 11 of the United States Bankruptcy Code in the Bankruptcy Court in the State of Delaware. Chapter 11 enables a debtor to restructure its business under the supervision of the court.
[6] On 3 June 2016 Judge Walrath of the United States Bankruptcy Court in Delaware appointed Mr Brian Whittman as foreign representative of UCI Holdings Ltd. Mr Whittman is the Chief Restructuring Officer of UCI International LLC, an indirect wholly owned subsidiary of UCI Holdings Ltd. He is a Certified Insolvency and Restructuring Adviser and a Certified Public Accountant.
[7] The United States Court’s foreign representative order also requests the assistance of the New Zealand courts to recognise Mr Whittman as foreign representative, to give full force and effect to its order, and to “act in aid of and be auxiliary to the United State Bankruptcy Court in relation to the protection of UCI Holdings’ estate in New Zealand, including by giving effect to the automatic stay under Bankruptcy Code section 362(a) in New Zealand”.
[8] The effect of s 362 of the United States Bankruptcy Code is that a Chapter 11 petition operates as an automatic stay on specified actions against the relevant estate without further order.
The New Zealand Applications
[9] UCI Holdings Ltd has four main groups of creditors:
(a) The Cayman Islands Branch of Credit Suisse and Rank Group
Finance Holdings Ltd as lenders of some $69 million, as at 2 June
2016, under a revolving credit arrangement guaranteed by UCI Holdings Ltd and others.
(b)Bondholders, for whose benefit Wilmington Trust NA acts, of $400 million of unsecured senior notes guaranteed by UCI Holdings Ltd.
(c) Inter-company and related-party creditors, including Rank Group Ltd and UCI Holdings (No 2) Ltd, for approximately NZ$5.2 million.
(d) Inland Revenue for outstanding tax liability of approximately
NZ$7 million.
[10] Mr Whittman has filed, in the High Court of New Zealand, an originating application under the Insolvency (Cross-Border) Act 2006 (the Act). He seeks orders recognising the Chapter 11 proceedings and staying enforcement against UCI Holdings Ltd in New Zealand on similar terms as the automatic stay in the United States.
[11] Pending a decision on the originating application, Mr Whittman has also filed an interlocutory application, without notice, for interim relief under article 19, Schedule 1 of the Act and r 24.56(3) of the High Court Rules. Mr Whittman seeks the following relief:
(a) Except as authorised by the United States Bankruptcy Court in the District of Delaware or by United States bankruptcy law as a result of the filing of the Chapter 11 proceeding:
(i) execution against UCI Holdings Ltd's assets is stayed; and
(ii)the right to transfer, encumber, or otherwise dispose of any assets of UCI Holdings Ltd is suspended.
(b)The order at paragraph (a) applies until Mr Whittman’s originating application for orders recognising foreign proceedings and for relief dated 7 June 2016 is decided upon.
(c) Leave is reserved to any creditor to apply for relief in relation to these orders.
[12] Mr Whittman also applies for directions for service under r 24.57(2) of the
High Court Rules. He applies to serve the originating application on Credit Suisse,
Wilmington Trust NA, Rank Group Finance Holdings Ltd, Rank Group Ltd, UCI Holdings (No 2) Ltd, and the Inland Revenue Department. The application also proposes that service on UCI Holdings Ltd be dispensed with, since Mr Whittman is its foreign representative.
[13] Mr Whittman has filed an affidavit in support of his applications and is authorised by the board of UCI Holdings Ltd to do so on its behalf. Jessica Boelter of Sidley Austin has filed an affidavit regarding United States law.
[14] The Cayman Islands Branch of Credit Suisse was served with a draft copy of the application for interim relief. Its position is that any relief granted in New Zealand should be on the express basis that the position of creditors is protected. In particular, Credit Suisse submits that any temporary relief under article 19 should be granted on the express condition that UCI Holdings Ltd complies with any order of the Bankruptcy Court in Delaware and United States bankruptcy law.
The Insolvency (Cross-Border) Act 2006
[15] In Williams v Simpson Heath J provided an authoritative treatment of the scheme and purpose of the Act, and the scope of interim relief, on the first occasion of reliance on the interim relief provision of the Model Law in New Zealand.1
Accordingly, I provide only a brief summary of the Act here.
[16] The Act implements in New Zealand the United Nations Model Law on Cross-Border Insolvency. It facilitates insolvency proceedings that cross borders. Schedule 1 sets out the terms of the Model Law and, by virtue of s 7 of the Act and article 1 of the Schedule, applies in the circumstances here.
[17] Article 4 confers jurisdiction on the High Court. Article 9 entitles a foreign representative, such as Mr Whittman, to apply directly to the High Court. Article 25 in Chapter IV requires that the High Court “shall co-operate to the maximum extent
possible with foreign courts or foreign representatives”.
1 Williams v Simpson HC Hamilton, CIV 2010-419-1174, 17 September 2010 at [33]-[46].
[18] Chapter III of the Model Law in Schedule 1 relates to recognition of a foreign proceeding. It distinguishes between a “foreign main proceeding” which takes place where the debtor has the centre of its main interests, and a “foreign non-main proceeding” which, otherwise, takes place where the debtor has an establishment. Unless it would be manifestly contrary to the public policy of New Zealand, the Court will recognise foreign proceedings if the formal requirements of article 17 are met regarding the nature of the proceedings, the identity of the foreign representative, and the form of the application.
[19] Relevantly, article 19 empowers the High Court, at the request of the foreign representative, to “grant relief of a provisional nature” from the timing of filing an application for recognition until the application is decided upon. The Court may grant relief “where relief is urgently needed to protect the assets of the debtor or the interests of the creditor”.
[20] The relief available is explicitly stated, by articles 19(1)(a) and (c) and
21(1)(c), to include the substantive relief sought here. Mr Whittman, as foreign representative, is required to notify UCI Holdings Ltd, as the debtor, of relief granted in the prescribed form and “as soon as practicable”.
[21] I agree with Heath J’s statements in Williams regarding article 19:2
[44] The purpose of art 19 is to provide a mechanism to enable the Court to protect assets or the interests of creditors when concern exists that the assets may perish, be susceptible to devaluation or otherwise in jeopardy. The emphasis is on flexibility of approach. The framers of the Model Law could not have anticipated the vast array of circumstances in which interim relief might be required. The provision is expressed in non- exhaustive terms, using the word “including” before specifying particular types of relief that might be ordered. Comparator cases in the United States under Chapter 15 of the US Bankruptcy Code (s 1519) highlight flexibility as the desired approach.3
[45] The relief contemplated by art 19 is designed to assist the general body of creditors under a collective insolvency regime, as opposed to relief aimed at helping individual creditors to obtain execution of a judgment debt.
2 At [44]-[46].
3 Chapter 15 is that part of the Code that adapts the Model Law for application in the United States. Section 1519 is in material terms the same as art 19 of Schedule 1. See also Re Ho Seok Lee 348 BR 799 (Bkrtcy WD Wash, 2006) at 802, applying Re Rukavina 227 BR 234 (Bankr SDNY 1998) at 239-240.
The collective nature of the bankruptcy regime supports an order, when there are risks that assets may be spirited away or having their value diminish significantly, to the detriment of those who would otherwise share in the distribution of their proceeds.4
[46] The Guide to Enactment reinforces those propositions. While a recognition application is pending, collective relief must be restricted to urgent and provisional measures for the collective good.5 That is consistent with interim relief extending only to the point at which the recognition decision is made.6
[22] In addition, in considering whether to grant interim relief under article 19, I derive assistance from the factors taken into account by New Zealand courts in considering whether to grant interim freezing orders under part 32 of the High Court Rules. That jurisdiction is also flexible, can be invoked on a without notice basis and can have similar effects on those subject to it. Relevantly, the factors include:7
(a) a good arguable case that the applicant will succeed (i.e. it is capable of tenable argument and supported by sufficient evidence);8
(b)a risk that the property will be dissipated or disposed of, defeating execution of a judgment; and
(c) the balance of convenience and the overall interests of justice must be weighed.
[23] An undertaking as to damages and the requirement of full and accurate disclosure by the applicant are also required in relation to freezing orders. I do not require the former here but I am confident the applicant would assume it has a duty
as to the latter.
4 For a discussion of the approach to personal and collective claims, in the context of the Model Law provisions, see Rubin v Eurofinance SA [2009] EWHC 2129 (Ch) at [47] and Rubin v Eurofinance SA [2010] EWCA Civ 895 at [61(2)].
5 UNCITRAL Model Law on Cross-Border Insolvency Guide to Enactment and Interpretation
(2013) at [137].
6 Insolvency (Cross-border) Act 2006, Schedule 1, art 19(3).
7 Shaw v Narain [1992] 2 NZLR 544 (CA) at 548 and as summarised by Katz J in Metronic New
Zealand Ltd v Finch [2013] NZHC 1253 at [5] and reflected in part 32.
8 Hannay v Mount [2011] NZCA 530 at [22].
My Decision
[24] Mr Friar, for Mr Whittman, submits that there is a strong likelihood the Court will make orders recognising the UCI Holdings Ltd Chapter 11 proceedings as either a foreign main proceeding, in which case the stay comes into effect automatically, or a foreign non-main proceeding where a discretionary stay is likely to be issued. He also submits that, if interim relief is not granted, any stay granted as a result of recognition would be rendered nugatory.
[25] I do not consider that a “strong likelihood” of the substantive application succeeding is necessary for the interim relief to be granted. But I agree with Lindgren J, of the Federal Court of Australia in Re Aero Inventory, that likelihood of substantive success is a relevant consideration in granting interim relief.9 The same is true in relation to granting freezing orders in the form of “a good arguable case”.
[26] Here, and without prejudging it, I am satisfied that there is at least a good arguable case for the substantive application. The application appears to be in the correct form, to be made by the right person and Chapter 11 proceedings have previously been recognised in New Zealand and Australia as qualifying for
recognition.10 Similarly, on the basis of the evidence before me, there is a good
arguable case that the proceeding would be found to be a foreign main proceeding.11
[27] Mr Friar submits a creditor of UCI Holdings Ltd may seek to take control of its shares by enforcing a security interest, issuing proceedings or seeking to appoint a liquidator. That could enable the rights attached to those shares to be exercised inconsistently with, and frustrate, the proposed Chapter 11 reorganisation of the UCI Group in the United States.
[28] There is no evidence of the degree to which this is a risk. But such evidence would be difficult to gather in advance. And the consequences of the risk eventuating would be significant. I am satisfied there is a risk that the substantive
relief could be rendered nugatory if interim relief is not granted.
9 Re Aero Inventory (UK) Ltd [2009] FCA 1354, (2009) ACSR 19 at [22].
10 Re Pacific Northstar Property Group LLC HC Auckland, CIV 2009-404-6312, 29 September
2009 at [7]; Re Buccaneer Energy Ltd [2014] FCA 711.
11 See Williams v Simpson, above n 1, at [30]-[32].
[29] Given its chances of success and the limited period of time before the substantive application is likely to be determined, I am satisfied that the overall balance of convenience and the interests of justice favour me granting the application for interim relief. I consider the requirements of article 19 are met.
Result
[30] I grant the application for directions as to service with the addition that a copy of this judgment is to be served with the originating application. I grant the interim orders as sought:
(a) Except as authorised by the United States Bankruptcy Court in the District of Delaware or by United States bankruptcy law as a result of the filing of the Chapter 11 proceeding:
(i) execution against UCI Holdings Ltd's assets is stayed; and
(ii)the right to transfer, encumber, or otherwise dispose of any assets of the UCI Holdings Ltd is suspended.
(b)The order at paragraph (a) applies until Mr Whittman’s originating application for orders recognising foreign proceedings and for relief dated 7 June 2016 is decided upon.
(c) Leave is reserved to any creditor to apply for relief in relation to these orders.
[31] As requested by Credit Suisse I grant the orders on the condition that UCI Holdings Ltd complies with any order of the Bankruptcy Court in Delaware and with United States bankruptcy law. That should go without saying. But, since it has been requested and is in the interests of creditors collectively, I say it.
Palmer J
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